With mortgage interest rates rising, some clients are feeling extra pressure to take action, to either buy a home or trade up to a different property. They have a classic case of FOMO… the “fear of missing out.”
We have a principle we strive to live by when it comes to choosing a home: optimize happiness, not money. In your ideal life, where do you want to wake up every day? The answer is usually not “in the place that optimizes my lowest possible mortgage payment.”
Interest rates can be a factor in the cost of home ownership, yes, but recent (and potential future) changes seem to be causing some undue angst.
The Primary Market Survey (accessed via YCharts, March 18, 2021) shows average 30-year mortgage rates have perked up about a third of a percentage point this year—from 2.67% to a little over 3%. This would make about a $50 monthly difference on a typical $250,000 mortgage.
The fear, then, is based mostly in what the future may bring in terms of higher rates. They can only go up from here, right?
The context of history may help, as it often does.
At the high point in 1981, mortgage rates topped 18%. Then they spent about a decade in double digits, followed by a decade mostly above 7%. Since 2000, a general slide lower and lower put rates below 3% for the first time.
Interestingly, back at that high point, nearly everyone with a fixed-rate mortgage they’d purchased in the past felt that they had a bargain. There were people paying 4% or 5% on mortgages from prior decades, while new loans were up in double digits.
If mortgage rates are facing a rise that is a mirror image of the past decline, borrowers in this era and for years to come may end up feeling the same way.
If you are striving to buy your first home or move up, our counsel remains the same. Think about where you want to wake up every day. If you find that place, figure out if you can make it happen. Optimize happiness, not money. (As with any consumption item, meeting one’s needs is preferable to wretched excess, of course.)
Clients, for detailed advice about home-buying, ask your trusted realtor; when you have questions about what a home purchase means for your financial plans and planning, email us or call.
30 Year Mortgage Rate, powered by YCharts.
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